Bank reconciliation

What is Bank Reconciliation?

A process used by individuals and businesses to ensure that financial records (account balances, transactions) are accurate and in agreement with the bank statements provided by the bank.

What is a Bank Reconciliation Statement?

A document that summarizes the reconciliation process and the final adjusted balances of the bank statement and the company’s accounts.

What Are the Components of Bank Reconciliation?

• Statement Balance: The balance as reported by the bank in the monthly statement.
• Check Register Balance:The balance in the check register or accounting records of the individual or business.
• Deposits in Transit: Amounts that have been deposited but not yet reflected on the bank statement.
• Outstanding Checks: Checks issued but not yet cleared and deducted from the bank account.
• Bank Charges and Fees: Charges imposed by the bank which might not have been recorded in the business’s books.
• Interest Income: Interest earned on a bank account that may not yet be recorded in the account holder's records.
• Errors: Mistakes either by the bank or the account holder in recording transactions.

Why is Bank Reconciliation Important?

• Error Identification: To identify errors in recording transactions in either the bank’s records or the company’s books.
• Fraud Detection: To detect any unauthorized transactions that might indicate fraud.
• Accurate Financial Statements: To ensure the accuracy of financial records and statements.
• Cash Flow Management: To accurately understand the available cash for better cash flow management.
• Frequency of Bank Reconciliation: Typically conducted monthly, following the receipt of the bank statement, but the frequency can vary based on the volume of transactions and the specific needs of the business or individual.

How Do You Perform Bank Reconciliation?

• Comparing Documents: The starting point is to compare the bank statement with the company’s own records.
• Adjusting Balances: Adjustments are made for any discrepancies due to timing differences, errors, or unrecognized transactions.
• Identifying Discrepancies: Any discrepancies between the two records are investigated and resolved.
• Updating Records: Once reconciled, the accounting records are updated to reflect the accurate balance.

See How Mysa Eliminates Manual Bank Reconciliation Headaches

Manual bank reconciliation is tedious, time-consuming, and prone to human error, often taking hours each month while risking missed discrepancies. Mysa automates your entire reconciliation process with intelligent matching technology.

• Automated Transaction Matching: AI instantly matches bank transactions with your records, identifying outstanding checks and deposits in transit automatically
• Real-Time Discrepancy Detection: Get immediate alerts for errors, unauthorized transactions, and unrecognized charges as they occur
• One-Click Reconciliation Reports: Generate complete reconciliation statements and updated cash balances in seconds, not hours

Turn monthly reconciliation marathons into automated precision with Mysa's intelligent banking integration.

Ready to automate your bank reconciliation? Book a demo to see how Mysa can eliminate manual reconciliation work forever.

Frequently Asked Questions About Bank Reconciliation

1. What is bank reconciliation in simple terms?

Bank reconciliation is matching your cash book with your bank statement to ensure they agree.

Why balances differ:

• Timing differences (deposits in transit, outstanding checks)
• Bank charges not yet recorded in your books
• Interest earned not recorded
• Data entry errors or bank mistakes

Result: Adjusted book balance should equal adjusted bank balance after accounting for these differences.

When to do it: Monthly after receiving bank statement (or weekly/daily for high-volume businesses).

2. How do you perform bank reconciliation step-by-step?

4-step process (30-60 minutes manually):

Step 1: Compare records Match bank statement transactions with your cash book line by line.

Step 2: Adjust bank balance

Bank balance + Deposits in transit - Outstanding checks = Adjusted bank balance

Step 3: Adjust book balance

Book balance + Interest earned - Bank fees - Errors = Adjusted book balance

Step 4: Verify and record

• Both adjusted balances should match
• Record journal entries for bank fees, interest, and corrections
• File reconciliation statement with supporting documents

With automation (Mysa, Zoho, QuickBooks): 5-10 minutes—software auto-matches transactions and flags discrepancies.

3. How often should I do bank reconciliation?

Recommended frequency:

With automated software: Can reconcile daily in 2-3 minutes.

Red flags requiring immediate reconciliation:

• Suspected fraud or unauthorized transactions
• Large unexplained balance differences
• Preparing for audit or investor review
• Customer payment disputes

4. What are the most common bank reconciliation problems?

Top 6 issues:

1. Timing differences - Deposits/checks not yet reflected on bank statement (most common, not an error)
2. Data entry errors - Transposed numbers, duplicate entries, wrong amounts
3. Unrecorded bank fees - Monthly charges, ATM fees, overdraft fees missed in books
4. NSF (bounced) checks - Customer check deposited then reversed by bank
5. Outstanding checks never cleared - Check issued but never cashed (follow up after 6 months)
6. Missing transactions - Bank shows transaction but no record in books (investigate for fraud)

Prevention:

• Reconcile weekly or monthly (not quarterly)
• Use automated bank feeds
• Review all unmatched transactions immediately
• Keep detailed notes on unresolved items

5. Can you give an example of bank reconciliation?

Simple example:

Starting balances:

• Bank statement: ₹5,25,000
• Cash book: ₹5,45,000
• Difference: ₹20,000 

Adjustments:

Result: Both balances match at ₹5,30,500 after adjustments.

Journal entry to record:

Bank Charges Expense: ₹1,700 (debit)

Interest Income: ₹300 (credit)

Error Correction: ₹13,100 (debit)

Cash/Bank: ₹14,500 (credit)

6. What happens if you don't do bank reconciliation?

7 serious consequences:

1. Undetected fraud - Unauthorized transactions go unnoticed for months (₹5-20 lakh average loss)
2. Compounding errors - Data entry mistakes multiply, requiring ₹50,000-₹2,00,000 to fix professionally
3. Inaccurate cash position - Think you have ₹5L but actually have ₹2L → bounced checks, overdraft fees
4. Lost tax deductions - Miss ₹20,000-₹1,00,000 in legitimate expense deductions annually
5. Failed audits - Unreconciled books = qualified audit opinion, regulatory penalties ₹50,000-₹5,00,000
6. Duplicate payments - Pay vendors twice, lose ₹10,000-₹50,000 annually
7. Poor decisions - Strategic choices based on wrong financial data

Timeline of damage:

• 1-3 months skipped: Minor errors accumulate
• 3-6 months: Cash position unclear, small fraud undetected
• 6-12 months: Major discrepancies, audit issues
• 12+ months: Books unreliable, possible business failure

Bottom line: 45 minutes monthly prevents ₹1,00,000-₹10,00,000 in fraud, errors, and compliance issues annually.